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The India-Israel Bilateral Investment Agreement (BIA) officially came into force on Saturday (July 4, 2026).
Signed in New Delhi on September 8 last year, the agreement replaces the nearly 30-year-old Bilateral Investment Treaty (BIT) signed in 1996 and introduces an updated legal framework designed to encourage investments while reflecting the realities of today’s global economy.
According to the Finance Ministry, the agreement is “robust in protection of investment and investor with respect to their investments while being flexible enough to retain sovereign policy space in line with legitimate public policy objectives, reflecting the modern principles and evolving jurisprudence of international investment law.”
The agreement is particularly notable because Israel has become the first member of the Organisation for Economic Co-operation and Development (OECD) with which India has concluded such a strategic investment pact.
With bilateral investments between India and Israel currently estimated at around $800 million, policymakers expect the new framework to encourage greater capital flows and support long-term investment across multiple sectors.
Why did India and Israel replace the 1996 investment treaty?
The Bilateral Investment Treaty signed in 1996 was negotiated at a time when international investment rules were considerably different from today’s standards.
Over the past decade, India terminated several earlier bilateral investment treaties as part of a broader effort to introduce agreements that provide stronger legal clarity while ensuring governments retain sufficient authority to regulate in the public interest.
The India-Israel BIA follows that modern approach. The objective is to provide confidence to investors while reducing uncertainty over how investment protections should be interpreted.
One of the most significant changes relates to national treatment. Under the earlier treaty, the scope of equal treatment for foreign investors was comparatively broader and, in some situations, open to interpretation.
The new agreement specifies that investors from either country are entitled to treatment equal to domestic investors operating in “similar circumstances.” However, this protection does not extend to rights relating to land or real estate.
The revised framework also provides much greater clarity regarding the balance between investor protection and government policymaking, an issue that has become increasingly important in international investment law over the past two decades.
How does the agreement protect investors?
One of the defining features of the BIA is its attempt to protect investments without restricting the ability of governments to introduce policies aimed at safeguarding broader public interests.
Unlike many earlier investment treaties, which often became the basis for disputes over domestic regulations, the India-Israel agreement explicitly recognises the sovereign right of both countries to regulate in pursuit of legitimate public policy objectives.
According to the Finance Ministry, the agreement balances investor protection with the state’s regulatory rights by preserving adequate policy space for sovereign governance.
The treaty clearly identifies several forms of conduct that may constitute a violation of investor protections. Among them are denial of justice during judicial or administrative proceedings, fundamental breaches of due process, targeted discrimination against investors and manifestly arbitrary treatment by state authorities.
By identifying these standards more specifically, the agreement seeks to reduce ambiguity that has often characterised international investment disputes under older treaties.
At the same time, the BIA makes it clear that government actions undertaken for legitimate policy reasons should not automatically become the basis for investment claims.
For instance, if either India or Israel introduces non-discriminatory measures aimed at protecting public health, safeguarding the environment or addressing broader macroeconomic concerns, such actions would not automatically amount to indirect expropriation merely because they affect an investor’s commercial interests.
Another safeguard allows both countries to temporarily restrict fund transfers during severe balance-of-payments difficulties or other macroeconomic crises, recognising that extraordinary economic circumstances may require temporary financial controls.
What safeguards does the BIA provide against expropriation and unfair treatment?
Protection against expropriation forms one of the central pillars of the agreement. While the earlier investment treaty offered general safeguards against seizure of investments, the new BIA introduces more detailed provisions that distinguish between direct and indirect expropriation.
The agreement lays down specific criteria to determine whether government action amounts to expropriation, thereby reducing uncertainty for both investors and governments.
Where expropriation is applicable, the treaty provides for due process and prompt compensation. The BIA also includes provisions aimed at ensuring transparency and compensation for losses where required.
By defining these standards more clearly than the previous treaty, the agreement seeks to minimise prolonged legal disputes arising from differing interpretations of investment protections.
In addition, disputes arising under the agreement may be addressed through an independent arbitration mechanism, offering investors an established legal avenue while maintaining safeguards for sovereign governments.
How will movement of investment funds become easier?
Under the BIA, investors are permitted to transfer profits, dividends, capital gains, proceeds from the sale of investments, interest payments, royalty payments, technical fees and other investment-related funds.
Such transfers may be made in the currency of the original investment or any other freely convertible currency. The agreement also specifies that transfers should take place at the prevailing market exchange rate applicable on the date of transfer.
This provision is intended to provide greater certainty for businesses by ensuring that legitimate financial transactions connected with investments can move between the two countries under clearly defined rules.
At the same time, the agreement preserves the authority of governments to introduce temporary restrictions during exceptional economic circumstances, including serious balance-of-payments challenges.
What responsibilities will investors have now?
While many earlier investment treaties primarily focused on protecting foreign investors, the India-Israel BIA also places clear obligations on businesses seeking to benefit from the agreement.
Foreign investors are required to comply with all applicable domestic laws in the host country. These obligations include adherence to taxation laws, anti-corruption requirements and transparency standards.
The agreement also introduces an important accountability measure by making it clear that investors who offer undue benefits or “grease payments” to public officials will lose the protections available under the treaty.
Which areas fall outside the scope of the agreement?
The agreement excludes measures adopted by local governments from its scope. It also does not apply to laws or measures relating to taxation, including actions taken to enforce tax obligations.
Similarly, government procurement decisions are excluded, as are subsidies and grants extended by either country.
Which sectors stand to benefit the most?
Although the BIA applies broadly to investments across the economy, its timing closely aligns with India’s and Israel’s growing focus on high-value technology sectors, advanced manufacturing and innovation-led growth.
The agreement comes just months after the two countries
elevated their relationship to a “Special Strategic Partnership for Peace, Innovation & Prosperity” in February earlier this year.
While that strategic partnership laid out the broader vision for future cooperation, the BIA provides the legal and financial framework intended to support investments that can help realise those ambitions.
Among the sectors expected to benefit the most are DeepTech, artificial intelligence, semiconductor manufacturing, defence production, aerospace, water technology and agriculture.
Israel has built an international reputation as the “Startup Nation” and is recognised for its strength in DeepTech, artificial intelligence and quantum computing. The country’s innovation ecosystem has generated a significant concentration of intellectual property and technology-focused enterprises over the past few decades.
The BIA provides Indian companies as well with a more predictable legal environment should they seek to invest in Israeli technology companies, establish operations there or acquire advanced intellectual property.
For Indian businesses that are attempting to move beyond traditional IT services into product development and cutting-edge technologies, stronger legal protection for investments could provide greater confidence when expanding into Israel’s innovation ecosystem.
The agreement could also work in the opposite direction.
Israeli companies specialising in semiconductor design and advanced technology may now find a clearer legal pathway to establish operations in India, particularly as New Delhi continues promoting domestic semiconductor manufacturing through incentive programmes.
How could defence & aerospace expand?
Following a major defence memorandum signed between the two countries last year, cooperation has increasingly moved beyond a traditional buyer-seller relationship towards joint development and manufacturing.
The BIA provides an additional layer of legal certainty that could facilitate more sophisticated investment arrangements, including joint ventures and co-development projects.
Under such arrangements, Israeli defence companies may be able to invest directly in manufacturing facilities located in India while operating within the framework of the country’s “Make in India” initiative.
The agreement offers investors a clearer legal environment for deploying capital into long-term manufacturing and industrial projects, something that is particularly important in sectors such as defence and aerospace where investments are often substantial and spread over many years.
What about water and agriculture?
India has long looked towards Israel’s expertise in water management technologies, particularly in areas such as desalination, wastewater recycling and micro-drip irrigation. With climate change placing increasing pressure on water resources and agricultural productivity, these technologies have acquired greater strategic importance.
The BIA provides a more stable investment framework that may encourage structured deployment of Israeli capital and technology across Indian states in projects relating to water conservation and agricultural modernisation.
Improved legal certainty could also make it easier for companies from both countries to undertake long-term investments in climate-resilient agricultural infrastructure and water-resource management initiatives.
What could the agreement mean for Indian businesses and startups?
One of the important objectives of the agreement is to provide greater certainty for Indian companies investing abroad.
Indian startups and technology firms looking to establish operations in Israel or acquire advanced intellectual property would now be covered by the same investment protections available under the agreement.
This could prove particularly relevant for companies seeking to build partnerships within Israel’s innovation ecosystem, often referred to as “Silicon Wadi.”
The agreement also has implications for businesses operating within India. By creating a more predictable investment environment, it is expected to encourage Israeli companies to expand their presence through research centres, manufacturing facilities and collaborative ventures.
Such investments have the potential to generate demand for highly skilled Indian professionals across engineering, research, technology development and managerial roles.
As investment activity expands, Indian entrepreneurs may also benefit from greater opportunities to collaborate with Israeli firms possessing expertise in advanced technologies.
How could ordinary Indians benefit from the BIA?
One expected outcome is employment generation.
As Israeli companies establish or expand research and development centres, manufacturing units and technology partnerships in India, demand for skilled professionals could increase across multiple sectors, including engineering, advanced manufacturing, research and management.
The agreement could also improve access to cutting-edge technologies that support India’s broader development priorities.
Investment into sectors such as semiconductors, defence manufacturing, agricultural technology and water management has the potential to strengthen domestic industrial capabilities while supporting technological modernisation.
From a wider policy perspective, attracting stable foreign direct investment is also consistent with India’s broader economic ambitions, including its long-term vision of building a developed economy under the “Viksit Bharat” initiative.
Why is Israel being the first OECD country significant?
The agreement carries additional diplomatic weight because Israel has become the first OECD member country with which India has concluded this type of strategic bilateral investment agreement.
The Organisation for Economic Co-operation and Development comprises many of the world’s advanced economies and is widely associated with high standards of governance, investment and economic cooperation.
Concluding such an agreement with an OECD member reflects the growing maturity of India-Israel economic relations and signals both countries’ willingness to strengthen long-term investment ties through a modern legal framework.
The agreement also demonstrates India’s continuing effort to replace older bilateral investment treaties with arrangements that reflect contemporary international investment practices while balancing investor rights with national policy priorities.
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With inputs from agencies
